Read This Before Considering Hess Midstream LP (NYSE:HESM) For Its Upcoming US$0.60 Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Hess Midstream LP (NYSE:HESM) is about to go ex-dividend in just three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase Hess Midstream's shares before the 2nd of August to receive the dividend, which will be paid on the 14th of August.
The company's next dividend payment will be US$0.60 per share, and in the last 12 months, the company paid a total of US$2.40 per share. Calculating the last year's worth of payments shows that Hess Midstream has a trailing yield of 7.7% on the current share price of $31.33. If you buy this business for its dividend, you should have an idea of whether Hess Midstream's dividend is reliable and sustainable. As a result, readers should always check whether Hess Midstream has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Hess Midstream
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Hess Midstream paid out 116% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance. A useful secondary check can be to evaluate whether Hess Midstream generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 15% of its cash flow last year.
It's good to see that while Hess Midstream's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Hess Midstream's earnings per share have been growing at 12% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Hess Midstream has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
To Sum It Up
From a dividend perspective, should investors buy or avoid Hess Midstream? Earnings per share have been rising nicely although, even though its cashflow payout ratio is low, we question why Hess Midstream is paying out so much of its profit. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.
On that note, you'll want to research what risks Hess Midstream is facing. Be aware that Hess Midstream is showing 4 warning signs in our investment analysis, and 2 of those are a bit unpleasant...
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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